PUBLIC SECTOR PENSION REVIEW

ASEO
Membership Briefing Note re Proposed Pension Scheme Changes
November 2014
Preamble

Following the last meetings in September 2013, ASEO member organisations balloted/consulted with
their members which resulted in a rejection of the proposals placed before you in late 2013. Since
then we have continued to try and negotiate for an improvement in the offer the employer was
prepared to make.

In the late spring of this year, both parties agreed to enter into mediation in order to try and resolve
the differences. Following this process a new updated proposal was submitted to the ASEO for
consideration and follows this introduction.

The ASEO believes it is vitally important for members to be fully informed when participating in the
balloting/consultation processes that will follow in the coming weeks. Members should understand the
proposed changes and how they will be individually affected along with the risks involved in not
accepting the proposals, and what may be expected of them to support such a choice.

It is also important to point out that the benefits you have accrued under the current scheme up to the
st

31 December 2014 will be unaffected by these changes other than a move from RPI to RPIX. This
part of your pension will still be based on your final salary at the time you retire. What you get under
the current scheme part of your pension will depend on how many years you have accrued, and the
date you joined the scheme.

This document is intended to be a factual description of the proposed changes only, and deliberately
does not offer any opinions on the changes. Individual unions will issue commentary on the proposals
to their members.

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1.

Introduction
This paper sets out in detail the proposal for the future pension provision for States
employees.

2.

Accrued benefits

2.1

Pensioners and deferred pensioners

It is proposed that the accrued benefits of pensioners and deferred pensioners should be
unaffected by the proposed changes. This includes benefits potentially payable on death.
It is proposed that future pension and deferred pension increases from the implementation
st
date (likely to be 1 July 2015 if agreement is reached) will be based on the increases in
RPIX rather than the increases in the RPI.

2.2

Active members
Active members are employees who are in the service of the States and members of the
Scheme on the day before implementation date.
The proposal is that active members accrued benefits up to the day before implementation
date would continue to be linked to their salary up until the date they leave the service of the
States, leave the Scheme, die or retire (whichever is the earlier) ie members accrued benefits
would retain the final salary link while the member remains in the States employ and as a
member of the Scheme.
The proposal is those members accrued benefits up to the day before implementation date
could be received in full from the members current Normal Pension Date if the member
retires at that date.
For example, consider a pre 2008 active member who has a current Normal Pension Date of
age 60. If he/she retires at age 60, accrued benefits earned up to the day before
implementation date would be payable in full ie would not be reduced. If he/she retires prior
to age 60, these accrued benefits would be reduced for early payment (based on years before
age 60).
For the avoidance of doubt, it is not proposed that a current active member will be able to
start to receive their accrued benefits at their current Normal Pension Date whilst remaining in
service and accruing benefits under the new structure, unless the arrangements for flexible
retirement apply.

2.3

Death benefits/ill health benefits

If an active member were to die in service, in deferment or after retirement, a
spouse/qualifying partner/childrens pension would be paid based on the accrued benefit only.
(Any enhancement to benefits would be paid from the new structure.)

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For example if an active member has accrued 10 years of service at implementation date and
dies in service 5 years later when his/her final salary has increased to 30,000, a spouses
pension of
10/160 x 30,000 = 1,875 pa
would be paid. (The pension to a qualifying partner would be based on service qualifying for
this benefit.)
A similar calculation would apply on death in deferment or death in retirement.
For the avoidance of doubt, any enhancement to the death in service benefits and the lump
sum payable on death in service would be available from the new structure, together with a
benefit based on service under the new structure.
The calculation of a pension on ill health would follow similar principles. The benefit would be
based on accrued service only whatever the level of incapacity, any uplift would be provided
through the new structure, together with a benefit based on service under the new structure.
The death in service lump sum remains 3x your annual salary.
2.4

Pension and deferred pension increases

It is proposed that pension and deferred pension increases to active members accrued
benefits to the date of implementation will be based on increases in the RPIX.

2.5

Protection for members approaching Normal Pension Date

It is proposed that protection will be given to active members who are contributing members
of the Scheme and within a period of 10 years before Normal Pension Date (but no younger
than age 45) at 31 December 2013. They would remain in the final salary section of the
Scheme under its current terms and conditions including paying the same level of
contributions as they do now.
Those members who would receive the above protection to remain in the final salary section
of the Scheme would have the option of foregoing that protection and opting to move to the
new structure. Such decision would need to be made within 3 months prior to the
implementation date.

3.

New structure

3.1

Hybrid arrangement
The new structure is proposed to be a hybrid arrangement. This would be made up of a
Career Average Revalued Earnings Scheme (CARE scheme) for earnings up to a cap,
currently 85,552 which will increase with civil service pay grade SO6. The employer
contribution paid on pensionable pay above the cap is 12% of pensionable pay. The member
contribution is at the standard rate (see below).

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Employer and member pension contributions on pensionable pay above the cap will be paid
into a new defined contribution section within the new structure. This defined contribution
section would be established as part of the Superannuation Fund. The new defined
contribution section will be available to enable all members to pay additional voluntary
contributions.
3.2

The details
The details are as follows:

the CARE accrual rate is proposed to be 1/80 for pension and 3/80 for a separate lump
sum.

the earnings cap is proposed to be 85,552. This will increase in line with civil service
pay (grade SO6).

the CARE indexation both in the period to retirement and once in payment is proposed to
be the increase in the Guernsey RPIX, subject to a maximum increase in any year of 6%.
However, if the increase in the RPIX for the 12 months ending on the preceding 30 June
on which the increase is to be based has exceeded 6.0% pa, the Policy Council on advice
from Treasury and Resources will have the authority to consider whether the increase to
be awarded for that year should exceed 6%.. They will take into account, amongst other
matters, the funding position of the scheme and the general position of the States'
finances. There would follow an open and transparent discussion with trade unions over
the proposed increase and if agreement cannot be reached, then arbitration would be
available to settle any dispute. For the avoidance of doubt, separate decisions would be
made regarding the indexation in the period to retirement for current employees, the
indexation in the period to retirement for deferred members and the increase to be
awarded to pensioners.

Normal Pension Age (NPA) is proposed to be linked directly to the Guernsey State
Pension Age (SPA). The SPA is due to rise to 67 by 2031. At this point, any further
increases in SPA would not automatically apply to members who were in the scheme as
of the implementation date. Any increase in NPA for these members would be subject to
discussions at the Pensions Consultative Committee. For members joining after the
implementation date, any increases in SPA beyond 67 would automatically increase their
NPA as well.

Special Groups (Police, Fire, Nurses and Mental Health Officers) Their NPD will be age
60 or SPA less 7 years, if higher, for members of the police force, fire fighters, nurses and
mental health officers who currently have an NPD below age 60, who remain in service
until age 55. At this age or above members may defer payment of benefits until NPD or
draw benefits actuarially reduced with reference to NPD. Other deferred members of
these groups will have an NPD of the SPA. The employer will be able to determine that a
police officer or firefighter who is at least age 55 but less than NPD should be retired from
the service having regard to the economical, effective and efficient management of the
service and the costs likely to be incurred in that particular case. In such a case the
pension awarded would be the accrued pension.

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For those joining from the implementation date, if SPA is amended in the future, this
would automatically trigger a change to NPD for all benefits (subject to SPA less 7 years
being higher than age 60 for members of the police force and fire fighters, who remain in
service until age 55). For those joined before the implementation date, all benefits
earned from the implementation date will be linked to the SPA currently approved (eg
SPA of age 67 by 2031) but any future amendments to the SPA could be the subject of
discussion within the Pensions Consultative Committee.

no other special terms will apply to any other groups of members.

there will be no cap on the maximum number of years of pensionable service.

if members retire before NPD their benefits will be actuarially reduced for early payment.

members will retain the current option to take flexible retirement, if their pensionable pay
reduces. The earlier accrued benefits would be paid first.

spouse/qualifying partner pension death benefits will accrue on a CARE basis at an

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accrual rate of 1/160 (the current accrual rate) and childrens pensions at the current
accrual rate also.

an enhancement will apply to death in service pensions and Total Incapacity pensions
based on one half of the remaining prospective reckonable service to NPD (the same as
the current enhancement).

a death in service lump sum of 3 times annual pay would be paid.

on death in retirement, the level of the members pension would continue to be paid for 3
months following death, if death occurs 5 years or more after retirement.

on death in retirement within 5 years of retirement, a lump sum would be paid equal to the
balance of the pension payments that would have been made to the end of the 5 year
period, at the rate in force at the date of death.

standard member contributions of 6% (protected members continue to pay 6.5%) of

pensionable pay would be paid from the implementation date.

additional contributions of 2.25% of pensionable pay (ie a total of 8.25%) would be paid
from the implementation date by members of the police force and fire fighters to reflect
their earlier NPD.

the definition of pensionable pay will be unchanged from the current definition (ie basic
pay plus shift pay plus certain allowances; overtime is not included).

redundancy benefits would be subject to a separate review, with all reasonable efforts
being made to complete the review by 31 December 2015.

members would be able to commute part of their pension to receive an additional lump
sum. A total lump sum of up to 30% of the value of their retirement benefits would be

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available. The commutation would be at a rate of 1 pa of pension for 12 lump sum (the
current commutation rate). This change would apply to the final salary section of the
Scheme as well.

3.3

deferred benefits would be available after 2 years service; a refund of member

contributions or a transfer value would be available for less than 2 years service. A
refund or transfer value would be available at any time. For the avoidance of doubt,
pensionable service to the implementation date will count towards the 2 years qualifying
service.

transfers in on the Transfer Club basis would be permitted for members who used to work
in the UK public sector. These transfers would follow Club rules. Members may pay
contributions to make up lost service caused by part of their UK pension being a
Guaranteed Minimum Pension. All other transfers in from non-Club schemes would be
paid into the defined contribution section.

the new structure would be compulsory for all new staff including part timers who are
employed after the implementation date, excluding temporary workers.

no new Additional Voluntary Contributions (AVCs) contracts will be permitted for added
pension. All new AVCs would be paid to the new defined contribution section.

the benefit structure as set out above would apply to the Actuarial Accounts, i.e. to
Guernsey Electricity Limited, Guernsey Post Limited and Guernsey Financial Services
Commission. The fixed cost ceiling would not apply.

How a CARE scheme would operate

The proposed CARE scheme would operate on a calendar year basis. A members
pensionable pay would be determined for each calendar year. If the pay award is late, the
basic pay would be assumed to be effective from the backdated date of the award.
Pensionable pay supplements will be counted in the year they are received.
For example, a pay award due on 1 October 2015 is settled in February 2016. Back
payments of basic pay and pensionable supplements are made in March 2016. For the
purposes of calculating pensionable pay for 2015, the basic pay award would be counted
from October 2015. The increased pensionable supplements would be counted in the 2016
calculation of pensionable pay.
Pensionable pay will be determined for each calendar year and the accrued CARE pension
calculated for that year. The first increase will apply from the 31 December of the year
following the accrual based on the RPIX for the previous June. For example, considering
pension accrual:

Year

2015

Pensionable pay

30,000

CARE accrual

1/80 x 30,000 = 375

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First increase
3.4

31 December 2016, based on June 2016 RPIX (capped at 6%)

How the defined contribution section would operate

Employer and member contributions on pensionable pay above the cap (initially 85,552) will
be paid into a new defined contribution section. For example, consider a person who earns
100,000 pa. The employer contribution into the defined contribution section would be:
12% of (100,000 - 85,552)
=

12% of 14,448

1,734

The member contribution would be:

6.0% of (100,000 - 85,552)
=

6.0% of 14,448

867

All members will have the option of paying voluntary contributions into the defined contribution
section.
There will be a range of investment funds available within the defined contribution section.
Members will have the option to select how their contributions are invested, otherwise there
will be a default investment selection, determined by Treasury and Resources.
A member's contributions will accumulate with the investment returns of the selected funds,
up until retirement. At that time a member will use the accumulated funds to purchase an
additional pension and/or provide an additional lump sum.
3.5

Fixed cost ceiling

A fixed cost ceiling of 14.5% of pensionable pay will apply to the employers contribution for
standard employees. The cost of the new structure would be reviewed at each triennial
valuation. If the cost of the new structure exceeds this, then negotiations will take place to
either reduce future accrual or increase member contributions (or both). If agreement is not
reached then the accrual rate will be reduced to limit the employers contribution to 14.5% of
pensionable pay. The fixed cost ceiling will include

the future service contribution rate

any past service costs (within the new structure) relating to improving longevity of active
members

All other past service costs including any additional costs if investment return is lower than
anticipated will be met by the employer.
There will be a floor to the employer's contribution rate for standard employees calculated in
relation to future service benefits (and the saving within the new structure arising from

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reduced longevity for active members past service benefits) equal to the member contribution
rate.
3.6

Benefit statements
Benefit statements in relation to benefits accrued under the new structure would be available
in May each year and will show benefit accrual over the previous calendar year and total
accrued benefit at the previous 31 December.

Conclusion
ASEO is of the view that we are close to a time where negotiations or working through mediation is
very unlikely to make much further progress.

The ASEO, which is a coalition of members

organizations, recognizes the impact of the changes is not equal across all staff groups. It has tried to
work collectively to ensure that the proposals have been subject to strong scrutiny.
ASEO very much believes that the employer is determined to drive through these changes to the
scheme to make savings for the States of Guernsey. Members should be under no illusion of the
serious challenge we shall face in defending the current scheme if you decide to oppose the changes.
ASEO believes that the time is right, once again, to take the views of the pension scheme members
on the way forward.
The Association of States Employee Organisations has agreed to a neutral stance on these
proposals: In other words, it will neither recommend rejection or acceptance, but will explain
the proposals and then seek the members views by formal methods, through its member
organisations.

November 2014

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